Defence budget 'black hole' slammed

The increasing 'black hole' in Ministry of Defence's equipment budget has been criticised

The "black hole" in the Ministry of Defence's equipment budget ballooned by £3.3 billion in the final 12 months of the Labour government, the Whitehall spending watchdog has disclosed.

The National Audit Office (NAO) blamed a failure to set "realistic" budgets, resulting in a "mismatch" between the MoD's planned expenditure and its forecast funding by the Treasury.

Defence Secretary Liam Fox said the cost over-runs were "the direct result of the incompetence of ministers" in the former government.

The increase in costs was almost entirely down to two programmes - the RAF's Typhoon fighter jets, which rose by £2.7 billion, and the Royal Navy's two planned new aircraft carriers which went up by £650 million.

The future of the carriers - which are now forecast to cost £5.9 billion - has been a key issue in the Government's Strategic Defence and Security Review which is due to be published next week.

The in-year cost increase contributed to what ministers say is a £38 billion "black hole" in the equipment programme which has left them scrabbling to find major spending cuts.

The NAO said the increase in the cost of the Typhoons was down to a decision to buy 16 additional aircraft in order to meet the UK's contractual obligations under the four-nation Eurofighter programme with Germany, Italy and Spain.

It said that in 2004, the MoD had withdrawn the remaining £978 million it had for the third and final tranche of aircraft, even though it knew it was likely to be faced with further "significant" costs.

The rise in the cost of the carriers was due to the decision in 2008 to slow down the programme in order to spread the spending over a longer period.

The MoD had previously estimated that this would add £908 million to the final cost, but the full cost of the deferral is now put at £1.56 billion.